Further theory on customer segments and niches
Customer segments are generally defined in terms of clearly distinct function-based requirements, i.e. based on the needs that the products fulfill rather than the physical products in themselves. Thus each geographical market is typically divided into a number of customer segments. Very similar products may serve different needs and hence serve different markets. And very different products may serve the same need (= have the same obligatory properties), thus being in competition on the same market.
Differences in customer requirements may be based on differences in the purchase situation, the use situation, customer scale, age, sex, education, status, “culture”, attitudes etc.
To have a practical relevance, customer segments must be of a size that can provide adequate revenue to support a separate product line. Furthermore the customer segment must be clearly distinct and with a minimum of overlap, so that all products targeted for a segment are considered substitutable by the customers of this segment. Finally there should be low probability that a product targeted for another segment would be substitutable, implying that product substitution from segment to segment can be neglected.
Market segments may be further sub-divided into market niches. A market niche is a smaller sub-category of a market segment, where a part of the customers consider only niche products substitutable. An example of a well-known niche market is that of organic foodstuffs, but niches markets are found in all product categories. The difference between a segment and a niche is that while a large part of the customers in a segment will allow for substitution between niche products the niche costumers will not. Niche products are aimed at a smaller group of consumers within a segment, for whom specific product properties are obligatory. The exact same properties are only positioning properties in the broader market segment.